What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-01 compared with 2021-03-31 · 27 added, 596 removed, 0 unchanged (100% of the section changed)

Market for Registrant’s

Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our Common Stock is currently listed

on the NYSE under the symbol “XL.”

As of March 31,

2021, there were approximately 175 holders of record of our Common Stock.

This figure does not include shareholders whose

certificates are held in the name of the broker-dealers of other nominees.

We have not paid any cash dividends

on our Common Stock to date.

We may retain future earnings, if any, for future operations, expansion and debt repayment and has

no current plans to pay cash dividends for the foreseeable future.

Any decision to declare and pay dividends in the future will

be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial

condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant.

our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries

We do not anticipate declaring any cash dividends to holders of the Common Stock in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12 of Part III of this Annual

Report on Form 10-K regarding information about securities authorized for issuance under our equity compensation plans.

Recent Sales of Unregistered Securities

We had no sales of unregistered

equity securities during the period covered by this Annual Report on Form 10-K that were not previously reported in a Current Report

on Form 8-K or Quarterly Report on Form 10-Q.

Issued Purchases of Equity Securities

Selected Financial Data

Not Applicable.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations.

The following discussion and

analysis provides information which our management believes is relevant to an assessment and understanding of our financial condition

and results of operations.

This discussion and analysis should be read together with our results of operations and financial condition

and the audited and unaudited consolidated financial statements and related notes that are included elsewhere in this Annual Report

on Form 10-K.

In addition to historical financial information, this discussion and analysis contains forward-looking statements

based upon current expectations that involve risks, uncertainties and assumptions.

See the section entitled “Cautionary Note

Regarding Forward-Looking Statements.”

Actual results and timing of selected events may differ materially from those anticipated

in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors”

or elsewhere in this prospectus.

Certain figures, such as interest

rates and other percentages, included in this section have been rounded for ease of presentation.

Percentage figures included in

this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior

For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations

using the figures in our consolidated financial statements or in the associated text.

Certain other amounts that appear in this

section may similarly not sum due to rounding.

As used in this discussion and analysis,

references to “XL,”

“the company,”

“we,”

“us”

or “our”

refer only to

XL Fleet Corp.

and its consolidated subsidiaries.

We are a leading provider of fleet electrification

solutions for commercial vehicles in North America, with over 4,300 electrified powertrain systems sold and having driven over

140 million miles by over 200 fleets as of December 31, 2020.

Our vision is to become the world leader in fleet electrification

solutions, with a mission of accelerating the adoption of fleet electrification systems through cost effective, customer tailored

and comprehensive solutions.

In over 10 years of operations, we have

built one of the largest end-use commercial fleet customer bases of any Class 2-6 vehicle electrification company in North

Our fleet electrification solutions for commercial vehicles provide the market with cost-effective hybrid and plug-in

hybrid solutions with on-board telematics that are widely available for sale and deployment across a broad range of popular vehicle

chassis from the world’s leading OEMs.

We believe we are positioned to capitalize on our market leadership as we expand

our product offering into additional propulsion technologies including full battery electric and hydrogen fuel cell systems, heavier

vehicles such as Class 7-8 vehicles, additional vehicle models in Class 2-6 and comprehensive vehicle charging and energy

We currently sell most of our systems through a network of commercial vehicle upfitters, which we estimate already produces

over 100,000 commercial vehicles a year.

Our current electrified drive systems

are comprised of an electric motor that is mounted onto the vehicle’s drive shaft, an inverter motor controller, and a lithium-ion

battery pack to store energy to be used for propulsion.

We deploy our electrified drive systems (XLH™

and XLP™) onto

the chassis of vans, pickups, shuttle buses, delivery trucks, and many other commercial vehicles produced by OEMs such as Ford,

GMC, Chevrolet and Isuzu.

This technology can be installed as the vehicles are being manufactured by industry standard second stage

manufacturers, known as upfitters, in less than one day, with no negative impact on the vehicles’

operational performance

or factory warranties and with reduced maintenance cost.

Our electrified powertrain systems capture and store energy during braking

and subsequently deploy that energy into the driveline during acceleration, operating in parallel with the existing OEM drive train.

In addition, our plug-in hybrid system offers the ability to supplement this energy via a connection with an AC electricity source,

including a level 1 or level 2 charger.

Our systems enable vehicles to burn less fuel and emit less CO2, resulting in increases

of up to a 25-50% MPG improvement and up to a 20-33% reduction in GHG emissions.

To date, vehicles deploying our electrification

solutions have driven over 150 million miles.

We are developing additional offerings

to extend our range of electrification options with plans to include full battery electric propulsion (“XL ELECTRIC™”)

and, hydrogen fuel cell electric systems.

We further intend to deliver our systems on a broader range of vehicle applications (including

Class 8 products and electrified refuse vehicles, among other applications).

In addition, we plan to offer comprehensive charging

solutions (“XL GRID™”) and EaaS which would finance and manage vehicles, powertrains, charging systems, on-site

power and energy storage systems while charging customers on a usage and time basis.

In September 2020, Pivotal entered into

the Merger Agreement with Legacy XL, pursuant to which, upon the closing, Merger Sub would merge with and into Legacy XL, with

Legacy XL surviving the merger as a wholly owned subsidiary of Pivotal.

At a special meeting of Pivotal stockholders held on December 21,

2020, the Merger Agreement was approved and adopted, and the Merger and all other transactions contemplated by the Merger Agreement

were approved.

On December 21, 2020, Pivotal consummated the Business Combination pursuant to the Merger Agreement, Pivotal

changed its name to XL Fleet Corp, and the financial statements of Legacy XL became those of Pivotal.

Prior to the Business Combination, Legacy

XL financed its operations primarily through private placements of convertible preferred stock and issuance of convertible notes

payable, raising aggregate gross proceeds of approximately $64 million since our inception in 2009.

On December 21, 2020,

Legacy XL and Pivotal consummated the Business Combination and as a result we had cash of approximately $340 million after payment

of transaction costs and expenses.

As of December 31, 2020, our accumulated deficit since inception was approximately $89.6 million.

Reorganization and Public Company Costs

We were originally known as Pivotal

Investment Corporation II.

On December 21, 2020, Pivotal consummated the Merger of its wholly-owned subsidiary Merger Sub,

with and into Legacy XL, pursuant to the Merger Agreement, among Pivotal, Legacy XL and Merger Sub.

In connection with the Closing,

Pivotal changed its name to XL Fleet Corp.

Following the Closing, Legacy XL was

deemed the accounting predecessor of the Merger and is the successor registrant for SEC purposes, meaning that Legacy XL’s

financial statements for previous periods will be disclosed in our future periodic reports filed with the SEC.

Merger is accounted for as a reverse recapitalization.

Under this method of accounting, Pivotal is treated as the acquired company for

financial statement reporting purposes.

The most significant change in the successor’s reported financial position and results

are an increase in cash and cash equivalents of approximately $340 million as a result of the net proceeds from the Business Combination

and the private placement of 15 million shares of Common Stock pursuant to certain subscriptions agreements entered into by Pivotal and

certain investors, dated September 17, 2020 (the “PIPE”).

As a consequence of the Merger, we are

an NYSE-listed company, which will require us to hire a chief financial officer and additional personnel and implement procedures

and processes to address public company regulatory requirements and customary practices.

We expect to incur additional annual expenses

as a public company for, among other things, directors’

and officers’

liability insurance, director fees and additional

internal and external accounting, legal and administrative resources, including increased audit and legal fees.

Additionally, we expect our capital

and operating expenditures will increase significantly in connection with ongoing activities as we:

increase our investment in marketing, advertising, sales and distribution infrastructure for our existing and future products and services;

develop additional new products and enhancements to existing products;

obtain, maintain and improve our operational, financial and management performance;

hire additional personnel;

obtain, maintain, expand and protect our intellectual property portfolio;

operate as a public company.

Recent Developments

Public Health Emergency of International

On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency

of International Concern”

and on March 11, 2020, declared it to be a pandemic.

Actions taken around the world to help

mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas and forced closures for certain types

of public places and businesses.

The coronavirus and actions taken to mitigate its spread have had and are expected to continue

to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which we

On March 27, 2020, the CARES Act was enacted to, among other things, provide emergency assistance for individuals,

families and businesses affected by the coronavirus pandemic.

As the coronavirus pandemic continues

to evolve, we believe the extent of the impact to our business, operating results, cash flows, liquidity and financial condition

will be primarily driven by the severity and duration of the coronavirus pandemic, the pandemic’s impact on the U.S.

global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic.

primary drivers are beyond our knowledge and control, and as a result, at this time we are unable to predict the cumulative impact,

both in terms of severity and duration, that the coronavirus pandemic will have on our business, operating results, cash flows

and financial condition, but it could be material if the current circumstances continue to exist for a prolonged period of time.

Although we have made our best estimates based upon current information, actual results could materially differ from the estimates

and assumptions developed by management.

Accordingly, it is reasonably possible that the estimates made in the financial statements

have been, or will be, materially and adversely impacted in the near term as a result of these conditions, and if so, we may be

subject to future impairment losses related to long-lived assets as well as changes to recorded reserves and valuations.

we believe that the impact of the global microchip shortage that the entire vehicle industry is currently experiencing will adversely

impact our operating results in fiscal year 2021.

While we still believe that we have

increasing sales opportunities for the full year 2021, we expect sales for the first quarter of 2021 will be [less than they were

in the first quarter of 2020] and we believe it will increase in the second quarter, with a greater increase expected in the third

and fourth quarters, based on the sales pattern we saw drive our third and fourth quarter performance for fiscal year 2020.

Payroll Protection Program Loan :

On May 8, 2020, we received loan proceeds in the amount of $1.1 million under the Payroll Protection Program (“PPP”).

The PPP was established as part of CARES Act and provided for loans to qualifying businesses for amounts up to 2.5 times the average

monthly payroll expenses of the business, subject to certain limitations.

The loan bears interest at a rate of 1.0% per annum and

requires payment of principal in full upon the maturity date of April 21, 2022.

Interest on the loan accrues from the date

inception of the loan, interest payments are deferred for Deferral Period, and commencing one month from the expiration of the

first six months (the “Deferral Period”), principal and interest shall be paid monthly in equal payments in such amounts

which shall fully amortize the principal and interest amount by the maturity date of the loan.

The loan and accrued interest are

forgivable to the extent the borrower uses the loan proceeds for eligible purposes over a 24 week period subsequent to receiving

the loan, including payroll, benefits, rent and utilities, and so long as the borrower maintains threshold levels of pre-funding

employment and wage levels.

We have utilized the proceeds of the loan to fund payroll, benefits, rent and utilities.

and accrued interest were repaid in full in December 2020 following consummation of the Business Combination.

Comparability of Financial Information

Our historical operations and statements

of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the Business

Key Factors Affecting Operating Results

We believe that our performance and

future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including

those discussed below and in the section entitled “

Risk Factors—Risks Related to our Business and Industry .”

We are a leader in fleet electrification

which represents a very large market opportunity as the commercial fleet industry transforms to more sustainable operations in

the coming decades.

To capitalize on this opportunity, we have a strategy to leverage our existing products and sales channels

to market while also expanding our product line through new product development and expanding our capability to market and sell

those products.

Key factors affecting our operating results include our ability to increase sales of our current product offerings

and expand our product offerings in the future and to realize customer demand for such product offerings.

We believe that the size

of our sales opportunity pipeline and committed backlog are important indicators of future performance.

There are challenges and

risks to our plan to capture these opportunities, such as:

system architecture design choices must provide adequate functionality and value for customers;

component sourcing agreements must deliver targets for cost reduction while maintaining high quality and reliability;

design, development and validation of new product systems must be on time and on budget to meet the opportunity in the market and capacity to develop and commercialize these new products will have to be increased;

sales and marketing efforts must be effective in forging the relationships to deliver these products to market and generate demand from the end users and channel partners.

We will need to increase our capabilities in market segment analysis and understanding as it relates to system requirements and functionality.

Key Components of Statements of Operations

Research and Development Expense

Research and development expenses consist

primarily of costs incurred for the discovery and development of our electrified powertrain offerings, which include:

personnel-related expenses including salaries, benefits, travel and share-based compensation, for personnel performing research and development activities;

fees paid to third parties such as consultants and contractors for outsourced engineering services;

expenses related to prototype materials, supplies and third-party services;

depreciation for equipment used in research and development activities.

We expect our research and development

costs to increase substantially for the foreseeable future as we expect to use a significant portion of the proceeds from the Business

Combination and the PIPE to accelerate development of product enhancements and additional new products.

Selling, General and Administrative Expense

Selling, general and administrative

expenses consist of personnel-related expenses for our corporate, executive, finance, sales, marketing and other administrative

functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for

facilities, depreciation, amortization, travel, sales and marketing costs.

Personnel-related expenses consist of salaries, benefits

and share-based compensation.

We expect our selling, general and administrative expenses to increase for the foreseeable future

as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with

the rules and regulations of the SEC that may include legal, audit, additional insurance expenses, investor relations activities

and other administrative and professional services.

Other Income (Expense), Net

Other income and expense consists of

interest expense net of interest income, loss on extinguishment of debt and change in fair value of convertible notes payable derivative

Results of Operations

Comparison of

Years Ended December 31, 2020 and 2019

The consolidated statements

of operations for the years ended December 31, 2020 and 2019 are presented below:

Years Ended December 31,

(In thousands, except per share and share amounts)

Cost of revenues

Operating expenses:

Research and Development

Selling, general and admin expenses

Loss from operations

Other (income) expense:

Interest expense

Loss on extinguishment of debt

Change in fair value of convertible notes payable derivative liabilities

Revenues increased by $13.1 million,

or 181.9%, to $20.3 million in the year ended December 31, 2020 from $7.2 million for the year ended December 31,

The increase was primarily due to the resolution of battery supply issues, increased end customer demand and increased order

During the year ended December 31, 2020, we along with our suppliers and OEMs made improvements to our supply chain, including

sourcing an additional battery supplier, which helped to counteract the negative impact of the COVID-19 pandemic on our business

in prior quarters.

Of the $20.3 million in revenue for the year ended December 31, 2020, approximately $17.2 million of revenue

was recognized during the second half of the year, which was primarily due to the resolution of battery supply issues and seasonality

in the order and delivery of fleet vehicles.

Resolving the battery supply issues allowed us to increase production and fulfill

orders in our outstanding backlog.

Cost of Revenues

Cost of revenues increased by $9.5 million,

or 117.9%, to $17.6 million in the year ended December 31, 2020 from $8.1 million for the year ended December 31,

The increase was due to higher unit volume as a result of increased customer orders and resolution of supply chain disruptions

resulting from the COVID-19 pandemic and increased proportionally with the increased revenue.

These supply chain disruptions were

widespread in terms of shutdowns at various direct suppliers and their suppliers as well as the OEM vehicle factories that build

the vehicles our customers had ordered in anticipation of the installation of our hybrid and plug in hybrid systems.

Gross Profit (Loss)

Gross profit increased by $3.6 million,

or 419.1%, to $2.7 million in the year ended December 31, 2020 from a loss of $0.9 million for the year ended December 31,

This increase in gross profit was primarily due to higher unit volume as discussed above as well as improved price realization

per unit and cost reductions in sourcing batteries and other components.

Research and Development

Research and development expenses increased by $1.6 million,

or 54.7%, to $4.4 million in the year ended December 31, 2020 from $2.9 million for the year ended December 31, 2019.

The increase was primarily due to the hiring of additional engineering staff to support unit sales growth and to further develop our product

Selling, General and Administrative

Selling, general, and administrative

expenses increased by $3.8 million, or 38.2%, to $13.6 million in the year ended December 31, 2020 from $9.8 million

for the year ended December 31, 2019.

The increase was primarily due to costs incurred for readiness to become a public company,

including accounting, legal, and other professional fees of approximately $2 million, an increase in employee compensation of approximately

$1.8 million, inclusive of an increase of stock based compensation of approximately $0.8 million.

A new chief executive officer

was hired in October 2019 and various other personnel were hired during the fourth quarter of 2019 and in the year ended December

Other Income (Expense),

Interest expense, net increased by

$4.2 million, or 196.1%, to $6.4 million in the year ended December 31, 2020 from $2.2 million for the year

ended December 31, 2019 primarily due to the increase in the amount of convertible debt incurred in February 2020, the increase

in the amount of the term loan with Silicon Valley Bank in late 2019, the draw-down in August 2020 on our revolving line of credit

and the conversion of the convertible debt in December of 2020 which resulted in the accelerated amortization of the debt discount.

We incurred a loss on extinguishment of $1.0 million in connection with the amendment of certain convertible notes.

Specifically,

during February of 2020, we entered into amendments to the agreements with certain note holders to extend the maturities of $10.0

million in face value of convertible notes to February 2021.

We computed the discounted cash flows from these convertible notes as

of the date of the amendment, both before and after the amendment.

We determined that there was a greater than 10% change in the

present value of these cash flows, and as such, the amendment qualified as an extinguishment.

Pursuant to the relevant accounting

guidance, we recorded a loss on extinguishment of debt of $1.0 million.

The change in fair value of convertible notes payable

derivative liabilities of $2.9 million for the year ended December 31, 2020 was principally on account of an increase in the fair

value of our Common Stock.

Liquidity and Capital Resources

As of December 31, 2020, we had working

capital of $336.2 million, including cash and cash equivalents of $329.8 million.

We incurred a net loss of $25.6 million

for the year ended December 31, 2020 and a net loss of $14.9 million for the year ended December 31, 2019.

December 31, 2020, 7,441,020 public warrants were exercised, which resulted in the issuance of 7,441,020 shares of the Company's Common

Stock, gen erating cash proceeds of approximately $85.5 million .

We expect to continue to incur net losses in

the short term, as we continue to execute on our strategic initiatives to optimize our production for scale, invest in the sales and

channel teams, and expand our products and services.

Based on our current liquidity, no additional capital will be needed to execute

our business plan over the next 12 months.

Based on our current business plan, we expect to use approximately $25 million of our

funds to scale for core profitability, approximately $50 million to develop new products and services, approximately $25 million to

expand internationally, approximately $80 million for EaaS including providing financing to customers and related potential

acquisitions, and approximately $150 million for working capital, other potential acquisitions and general corporate purposes.

In order to fully realize our strategic

objectives, we may need to raise additional capital.

Our ability to access capital when needed is not assured and, if capital is

not available when, and in the amounts needed, we could be required to delay, scale back or abandon some or all of our development

programs and other operations, which could materially harm our business, prospects, financial condition and operating results.

Silicon Valley Bank Loan and Security

Effective December 10, 2018, and as

amended on August 12, 2020 and December 1, 2020, we entered into a Loan and Security Agreement for a revolving line of credit and

term loan with Silicon Valley Bank.

The revolving line of credit features a maximum borrowing base equal to the lesser of the defined

borrowing base less any outstanding principal or a minimum aggregate principal amount of $3 million, which may increase dependent

upon certain revenue targets.

In November 2019, we amended the Loan and Security Agreement to extend the maturity of the revolving

line of credit to December 8, 2020.

In December 2020, we amended the Loan and Security Agreement to extend the maturity of the

revolving line of credit to January 18, 2021.

The term loan was structured to be paid in two tranche periods of up to $1 million

in each period, or up to $2 million in total.

The revolving line of credit bears interest at a floating per annum rate equal to

the greater of (i) the prime rate plus 4.50% or (ii) a fixed rate of 7.75%.

The term loan has an interest rate equal to the greater

of (i) the prime rate plus 2.00% or (ii) a fixed rate of 7.00%.

The term loan matures in December 2021.

In connection with the November 2019

amendment to the Loan and Security Agreement, we secured access to an additional growth capital term loan, structured to be paid

in two tranche periods of up to $1.5 million in the first period and up to $0.5 million in the second period, or up to $2 million

This growth capital term loan has an interest rate equal to the greater of (i) the prime rate plus 2.00% or (ii)

a fixed rate of 7.00%.

The growth capital loan matures in June 2022.

The term loan and growth capital loan

and accrued interest thereon were repaid in December 2020 following the consummation of the Business Combination.

Convertible Promissory Notes

In March 2019, we executed a subordinated

convertible promissory note in the amount of $1 million which had an interest rate of 8.00% with a maturity date of the earlier

of March 29, 2020 or the date of a Change of Control (as defined therein) (the “March 2019 Note”).

In June 2019, we

executed subordinated convertible promissory notes in the aggregate amount of $10 million, for $9 million in new proceeds and the

exchange of the March 2019 Note (collectively, the “June 2019 Notes”).

The June 2019 Notes had an interest rate of

8.00% and a maturity date of June 19, 2020.

In February 2020, we amended and restated

the June 2019 Notes and entered into additional subordinated convertible promissory notes in the aggregate amount of $8.1 million

(such notes, the “February 2020 Notes”

and, together with the June 2019 Notes, the “2020 Notes”).

connection with the Business Combination, we fully settled the obligations under the convertible promissory notes with a cash

payment of $11.3 million and the issuance of 1,715,918 shares of our Common Stock in satisfaction of the remaining principal and accrued

interest of $6.8 million and $1.7 million, respectively.

Cash Flows Summary

Presented below is a summary of our

operating, investing and financing cash flows:

Years Ended December 31,

Net cash provided by (used in)

Operating activities

Investing activities

Financing activities

Net change in cash and cash equivalents

Cash Flows Used in Operating Activities

The net cash used in operating activities for

the year ended December 31, 2020 was $19.9 million which consisted of a net loss of $25.6 million and increases in accounts

receivable of $9.4 million, increases in inventory of $1.3 million and an increase of prepaid expenses and other current assets of

$1.3 million.

These uses of cash were offset by noncash

items in the aggregate of $11.0 million and increases in accounts payable of $3.8 million, and accrued expenses and other current

liabilities of $2.8 million.

The net cash used in operating activities for the year ended December 31, 2019 was $11.6 million which

consisted of a net loss of $14.9 million, offset principally by a decrease of $2.61 million in accounts receivable.

The period over

period increase in cash used in operating activities was principally due to an increase in the net loss.

Cash used in operations increased in 2020

versus 2019 by $8.3 million principally due to higher operating expenses in the 2020 period, due in part to merger expenses paid and

to restructuring in early 2019, which resulted in lower headcount than in 2020.

Cash Flows Used in Investing Activities

The net cash used in investing activities

for the year ended December 31, 2020 was $0.15 million which consisted of the equipment and a truck to support R&D operations.

The net cash used in investing activities for the year ended December 31, 2019 was $0.03 million which consisted of the purchase

of R&D equipment.

Provided by Financing Activities

The net cash provided by financing activities

for the year ended December 31, 2020 was $346.3 million which consisted of proceeds from the reverse merger recapitalization of

the Company, net of issuance costs of $207.2 million, proceeds from the issuance of the PIPE transaction, net of issuance costs

of $144.9 million and proceeds of $8.10 million from the issuance of subordinated convertible promissory notes.

The net cash provided

by financing activities for the year ended December 31, 2019 was $9.21 million which consisted of proceeds from the issuance of

subordinated convertible promissory notes of $10.0 million.

The year over year increase in cash provided was principally to fund

our expanding operations.

Related Parties

We are party to a noncancelable lease agreement

for office, research and development, and vehicle development and installation facilities with a holder of more than 5% of our Common

The lease term extends through February 29, 2022.

Pursuant to the terms of the lease agreement, we currently pay monthly

rent installments of $19,473 for this property.

The lease includes a rent escalation clause, and rent expense is being recorded on a

straight-line basis.

Rent expense under the operating lease for the years ended December 31, 2020 and 2019 was $0.2 million and

$0.2 million, respectively.

Off-Balance Sheet Arrangements

During the periods presented, other than the

New Markets Tax Credit variable interest entity, we did not have any relationships with unconsolidated organizations or financial partnerships,

such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our consolidated financial statements

have been prepared in accordance with the generally accepted accounting principles of the U.S.

The preparation of these consolidated

financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and

the disclosure of contingent assets and liabilities as of the consolidated balance sheet date, as well as the reported expenses

incurred during the reporting periods.

Management bases its estimates on historical experience and on various other assumptions

believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results could differ from those estimates, and such differences could be material to our consolidated financial statements.

While our significant accounting policies

are described in the notes to our historical financial statements included elsewhere in this Annual Report on Form 10-K (see Note

2 in the accompanying audited consolidated financial statements of XL), we believe that the following accounting policies require

a greater degree of judgment and complexity:

revenue recognition, business combinations and convertible notes derivative accounting.

Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial

condition and results of operations.

Business combinations:

We account for the acquisition of a business in accordance with ASC 805, Business Combinations (ASC 805).

to acquire a business are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition.

We determine the fair value of purchase consideration, including contingent consideration, and acquired intangible assets based

on detailed valuations that use certain information and assumptions provided by management.

We allocate any excess purchase price

over the fair value of the net tangible and intangible assets acquired to goodwill.

The results of operations of acquired businesses

are included in the financial statements from the date of acquisition forward.

Acquisition-related costs are expensed in periods

in which the costs are incurred.

We use the income approach to determine

the fair value of developed technology acquired in a business combination.

This approach determines fair value by estimating the

after-tax cash flows attributable to the respective asset over its useful life and then discounting these after-tax cash flows

back to a present value.

We base our revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected

trends in technology and expected product introductions by competitors.

Developed technology represents patented and unpatented

technology and know-how.

Revenue Recognition:

1, 2019, we adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

is primarily derived from the sales of hybrid electric powertrain equipment.

Our products are marketed and sold to end-user fleet

customers and channel partners in the United States and Canada.

Sales of products and services are subject to economic conditions

and may fluctuate based on changes in the industry, trade policies and financial markets.

Revenue is recognized upon transfer

of control to the customer, which occurs when we have a present right to payment, legal title has passed to the customer, the customer

has the significant risks and rewards of ownership, and where acceptance is not a formality, the customer has accepted the product

In general, transfer of control is upon shipment of the equipment as the terms are free on board shipping point, or

equivalent and we have no other promised goods or services in our contracts with customers.

In limited instances, we provide installation

services to end-user fleet customers related to the purchased hybrid electric powertrain equipment.

When provided, the installation

services are not distinct within the context of the contract due to the fact that the end-use fleet customer is purchasing a completed

modification to our vehicles and therefore, the installation services involve significant integration to integrate the hybrid electric

powertrain equipment with the customer’s vehicle.

As a result, the hybrid electric powertrain equipment and installation

services represent a single performance obligation within these contracts with customers.

We have elected to treat shipping and

handling activities related to contracts with channel partner customers as costs to fulfill the promise to transfer the associated

equipment and not as a separate performance obligation.

We provide limited-assurance-type warranties

for our equipment and work performed under our contracts.

The warranty period typically extends for 3 years following transfer

of control of the equipment.

The warranties solely relate to correction of product defects during the warranty period, which is

consistent with similar warranties offered by competitors.

Therefore, we have determined that this warranty is outside the scope

of ASC 606 and will continue to be accounted for under ASC 460, Guarantees.

At the time of purchase of the equipment, customers

may purchase from us an extended warranty for our equipment.

The extended warranty commences upon the end of the assurance-based

warranty period and is considered a separate performance obligation that represents a stand-ready obligation to perform warranty

services after the assurance-type warranty expires.

The transaction price allocated to the extended warranty is recognized ratably

over the extended warranty period.

When our contracts with customers contain

multiple performance obligations, the contract transaction price is allocated on a relative standalone selling price (“SSP”)

basis to each performance obligation.

We determine standalone selling prices based on observable selling prices for the sale of

For extended warranties, we determine SSP based on expected cost plus margin.

We establish the margin based on review of

market conditions and margins obtained by market participants for similar services.

Any allocation of the transaction price required

is determined at the contracts’

Convertible Note and Derivative

We assess embedded features within our convertible notes in order to determine whether or not there are features

which require accounting as a derivative liability.

We evaluate the features to determine whether or not the features were considered

clearly and closely related to the host notes, and meet the definition of a derivative.

If a feature is a derivative, the embedded

features would be required to be bifurcated from the notes and accounted for separately as a combined derivative liability.

would then be required to remeasure the combined derivative liability to its then fair value at each subsequent balance sheet date,

through an adjustment to current earnings.

Accordingly, these are the policies

we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Emerging Growth Company Status

We will be an “emerging growth

company”

under the Jumpstart Our Business Startups Act (the “JOBS Act”).

Section 102(b)(1) of the JOBS Act

exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private

companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of

securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply

to non-emerging growth companies but any such an election to opt out is irrevocable.

We may elect not to opt out of such extended

transition period, which means that when a standard is issued or revised and it has different application dates for public or private

companies, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or

revised standard, until such time we are no longer considered to be an emerging growth company.

At times, we may elect to early

adopt a new or revised standard.

See Note 2 of the accompanying audited consolidated financial statements for the recent accounting

pronouncements adopted and the recent accounting pronouncements not yet adopted for the years ending December 31, 2020 and

In addition, we intend to rely on the

other exemptions and reduced reporting requirements provided by the JOBS Act.

Subject to certain conditions set forth in the JOBS

Act, if, as an emerging growth company, we intend to rely on such exemptions, we will not be required to, among other things:

an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b)

of the Sarbanes-Oxley Act;

(b) provide all of the compensation disclosure that may be required of non-emerging growth public

companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act;

adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s

report providing additional information about the audit and the financial statements (auditor discussion and analysis);

and (d) disclose

certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons

of the Chief Executive Officer’s compensation to median employee compensation.

We will remain an emerging growth company

under the JOBS Act until the earliest of (a) December 31, 2024 (the last day of the fiscal year following the fifth anniversary

of the consummation of Pivotal’s initial public offering), (b) the last date of our fiscal year in which it has total

annual gross revenue of at least $1.1 billion, (c) the date on which we are deemed to be a “large accelerated filer”

under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date

on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

New and Recently Adopted Accounting Pronouncements

time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are applicable to us as of the

specified effective date.

Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet

effective will not have a material impact on our financial position or results of operations under adoption.

Accounting Pronouncements issued, not yet adopted under Note 3—Summary of Significant Accounting Policies in the notes

to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about the

recent accounting pronouncements, the timing of their adoption and our assessment, to the extent it has made one, of their potential

impact on our financial condition and results of operations.

As an “emerging growth company”, we can elect to opt out of

the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election

to opt out is irrevocable.

Quantitative and Qualitative Disclosure

About Market Risk

Not required.

Off-Balance Sheet Arrangements

We have no significant

known off balance sheet arrangements.

Quantitative and Qualitative

Disclosures About Market Risk.

Not required.

Financial Statements and Supplementary

Our financial statements

are contained in pages F-1 through F-39 which appear at the end of this Annual Report on Form 10-K.

Changes in and Disagreements

with Accountants on Accounting and Financial Disclosure.

There have been no

changes in or disagreements with accountants on accounting and financial disclosure.

Market for Registrant’s Common Equity, Related Shareholder

Matters and Issuer Purchases of Equity Securities.

Our Common Stock is currently listed on the NYSE

under the symbol “XL.”

As of February 25, 2022, there were approximately

85 holders of record of our Common Stock.

This figure does not include shareholders whose certificates are held in the name of their broker-dealers

or other nominees.

We have not paid any cash dividends on our Common

Stock to date.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to

pay cash dividends for the foreseeable future.

Any decision to declare and pay dividends in the future will be made at the discretion

of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements,

contractual restrictions and other factors that our board of directors may deem relevant.

In addition, our ability to pay dividends may

be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur.

We do not anticipate declaring

any cash dividends to holders of the Common Stock in the foreseeable future.

Authorized for Issuance Under Equity Compensation Plans

See Item 12 of Part III of this Annual Report

on Form 10-K regarding information about securities authorized for issuance under our equity compensation plans.

of Unregistered Securities

We had no sales of unregistered equity securities

during the period covered by this Annual Report on Form 10-K that were not previously reported in a Current Report on Form 8-K or Quarterly

Report on Form 10-Q.

Issuer Purchases of Equity Securities

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity